I'm thinking of clicking exempt for my severance before I leave. Has anyone else done this? How did it affect you when the following tax season came around?
6 replies (most recent on top)
That’s like calling a donut a bagel. You should read a series.
What about fish farming?
Always check the current applicable IRS rules or discuss with a tax professional:
The United States income tax system is a pay-as-you-go tax system, which means that you must pay income tax as you earn or receive your income during the year. You can do this either through withholding or by making estimated tax payments. If you didn't pay enough tax throughout the year, either through withholding or by making estimated tax payments, you may have to pay a penalty for underpayment of estimated tax. Generally, most taxpayers will avoid this penalty if they either owe less than $1,000 in tax after subtracting their withholding and refundable credits, or if they paid withholding and estimated tax of at least 90% of the tax for the current year or 100% of the tax shown on the return for the prior year, whichever is smaller. There are special rules for farmers and fishermen, certain household employers and certain higher income taxpayers. For more information, refer to Publication 505, Tax Withholding and Estimated Tax.
Better off you owing them than they owing you. imo
I don’t why people think that taxes are going to be different... you’re in a tax bracket so if you go exempt all year you will still owe the same amount if you didn’t. Only difference is that you paid the government through out the year instead of one lump sum. So figure out how much you made with the severance, then look up your tax bracket. The only way you owe more is if you pay late.
I believe all severance is taxed at a flat supplemental rate, regardless of your W4, but you can call payroll to confirm. I don't think you'd want to NOT withhold taxes or you may end up with penalties when you file next year.